What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-06 compared with 2021-11-05 · 151 added, 329 removed, 526 unchanged (48% of the section changed)

4 unchanged sentences

(In thousands)

September 30,

Current assets:

27 unchanged sentences

(In thousands)

September 30,

LIABILITIES AND STOCKHOLDERS’ EQUITY

17 unchanged sentences

Stockholders' equity:

Preferred stock — 5,000 shares authorized as of September 30, 2021 and December 31, 2020;

Preferred stock — 5,000 shares authorized as of March 31, 2022 and December 31, 2021;

no shares issued

1 unchanged sentence

shares authorized — 2022 and 2021 - 100,000 ;

issued and outstanding as of September 30, 2021 - 56,452 and December 31, 2020 - 55,623

issued and outstanding as of March 31, 2022 - 56,655 and December 31, 2021 - 56,570

Retained earnings

5 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts - unaudited)

Three Months Ended

Nine Months Ended

September 30,

Cost of sales

2 unchanged sentences

Research and development

Legal settlement

Impairment charges

Contingent consideration expense (benefit)

Contingent consideration expense

Total operating expenses

Income (loss) from operations

Income from operations

Other income (expense):

3 unchanged sentences

Total other expense — net

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Earnings (loss) per common share

Income before income taxes

Income tax expense

Earnings per common share

Weighted average shares outstanding

2 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands - unaudited)

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Other comprehensive income (loss):

4 unchanged sentences

Total other comprehensive income (loss)

Total comprehensive income (loss)

Total comprehensive income

See condensed notes to consolidated financial statements.

5 unchanged sentences

Balance — January 1, 2022

Other comprehensive loss

Stock-based compensation expense

Options exercised

Issuance of common stock under Employee Stock Purchase Plan

Shares issued from time-vested restricted stock units

Shares surrendered in exchange for payment of payroll tax liabilities

Shares surrendered in exchange for exercise of stock options

Balance — March 31, 2021

Other comprehensive income

3 unchanged sentences

Shares issued from time-vested restricted stock units

Balance — June 30, 2021

Other comprehensive loss

Stock-based compensation expense

Options exercised

Issuance of common stock under Employee Stock Purchase Plan

Shares surrendered in exchange for payment of payroll tax liabilities

Shares surrendered in exchange for exercise of stock options

Balance — September 30, 2021

See condensed notes to consolidated financial statements.

MERIT MEDICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands - unaudited)

Balance — March 31, 2022

Accumulated Other

1 unchanged sentence

Balance — January 1, 2021

Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses

Other comprehensive loss

2 unchanged sentences

Issuance of common stock under Employee Stock Purchase Plan

Shares issued from time-vested restricted stock units

Shares surrendered in exchange for payment of payroll tax liabilities

1 unchanged sentence

Balance — March 31, 2021

Other comprehensive income

Stock-based compensation expense

Options exercised

Issuance of common stock under Employee Stock Purchase Plan

Balance — June 30, 2020

Other comprehensive income

Stock-based compensation expense

Options exercised

Issuance of common stock under Employee Stock Purchase Plan

Balance — September 30, 2020

See condensed notes to consolidated financial statements.

3 unchanged sentences

(In thousands - unaudited)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Gain on sale of business

Loss on sales and/or abandonment of property and equipment

Loss (gain) on sales and/or abandonment of property and equipment

Write-off of certain intangible assets and other long-term assets

8 unchanged sentences

Prepaid expenses and other current assets

Prepaid income taxes

Income tax refund receivables

6 unchanged sentences

Total adjustments

Net cash provided by operating activities

Net cash, cash equivalents, and restricted cash provided by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

3 unchanged sentences

Proceeds from the sale of property and equipment

Proceeds from sale of business

Cash received for settlement of current note receivable

Cash paid in acquisitions, net of cash acquired

Net cash used in investing activities

Net cash, cash equivalents, and restricted cash used in investing activities

See condensed notes to consolidated financial statements.

3 unchanged sentences

(In thousands - unaudited)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM FINANCING ACTIVITIES:

4 unchanged sentences

Payment of taxes related to an exchange of common stock

Net cash used in financing activities

Effect of exchange rates on cash

Net increase in cash and cash equivalents

CASH AND CASH EQUIVALENTS:

Net cash, cash equivalents, and restricted cash used in financing activities

Effect of exchange rates on cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

Beginning of period

End of period

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:

Cash and cash equivalents

Restricted cash reported in prepaid expenses and other current assets

Total cash, cash equivalents and restricted cash

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

3 unchanged sentences

Property and equipment purchases in accounts payable

Current note receivable converted to equity investment

Proceeds from sale of business in other receivables

Merit common stock surrendered ( 0 and 2 shares, respectively) in exchange for exercise of stock options

8 unchanged sentences

"we"

or "us") for the three and nine-month periods ended September 30, 2021 and 2020 are not audited.

or "us") for the three-month periods ended March 31, 2022 and 2021 are not audited.

Our consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods and, consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America (“U.S.

In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of September 30, 2021 and December 31, 2020, and our results of operations and cash flows for the three and nine-month periods ended September 30, 2021 and 2020.

The results of operations for the three and nine-month periods ended September 30, 2021 and 2020 are not necessarily indicative of the results for a full-year period.

Percentages and earnings per share amounts presented are calculated from the underlying amounts.

In the opinion of our management, the accompanying consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of our financial position as of March 31, 2022 and December 31, 2021, and our results of operations and cash flows for the three-month periods ended March 31, 2022 and 2021.

The results of operations for the three-month periods ended March 31, 2022 and 2021 are not necessarily indicative of the results for a full-year period.

Amounts presented in this report are rounded, while percentages and earnings per share amounts presented are calculated from the underlying amounts.

These interim consolidated financial statements should be read in conjunction with the financial statements and risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report on Form 10-K”).

5 unchanged sentences

ASU 2020-04 and ASU 2021-01 were effective as of March 12, 2020, and t he provisions of these updates may be applied prospectively to transactions through December 31, 2022, when reference rate reform activity is expected to be completed.

As of September 30, 2021, we had not modified any contracts as a result of reference rate reform.

As of March 31, 2022, we had not modified any contracts as a result of reference rate reform.

W e are currently assessing the anticipated impact of these standards on our consolidated financial statements.

13 unchanged sentences

Our endoscopy segment consists of gastroenterology and pulmonology devices which assist in the palliative treatment of expanding esophageal, tracheobronchial and biliary strictures caused by malignant tumors.

The following tables present revenue from contracts with customers by reporting segment, product category and geographical region for the three and nine-month periods ended September 30, 2021 and 2020 (in thousands):

The following tables present revenue from contracts with customers by reporting segment, product category and geographical region for the three-month periods ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

September 30, 2021

September 30, 2020

United States

International

United States

International

Cardiovascular

Peripheral Intervention

Cardiac Intervention

Custom Procedural Solutions

Endoscopy devices

Nine Months Ended

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

United States

7 unchanged sentences

Endoscopy devices

Acquisitions.

On November 6, 2020, we entered into a unit purchase agreement to acquire KA Medical, LLC (“KA Medical”).

Subject to the terms and conditions of the unit purchase agreement, we paid $ 10.4 million in cash at closing, net of cash acquired, subject to adjustments for working capital and other matters, with additional deferred payments consisting of $ 1.5 million, which we paid during the three months ended June 30, 2021, and $ 2.5 million, which is payable no later than 12 months following the acquisition date.

KA Medical developed the Micro Plug TM Set, a self-expanding nitinol vascular occlusion device, which is FDA-cleared in the US and CE marked in Europe.

We accounted for this acquisition as a business combination.

The sales and results of operations related to the acquisition have been included in our cardiovascular segment since the acquisition date and are not materially relevant to our financial statements.

Acquisition-related costs associated with the KA Medical acquisition, which were included in selling, general and administrative expenses, were not material.

The purchase price was preliminarily allocated as follows (in thousands):

Assets Acquired

Trade receivables

Other receivables

Property and equipment

Other long-term assets

Intangible assets

Developed technology

Total assets acquired

Liabilities Assumed

Trade payables

Accrued expenses

Total liabilities assumed

Total net assets acquired

We are amortizing the developed technology intangible asset acquired through KA Medical over 17 years .

The goodwill consists largely of the synergies expected from combining operations and is expected to be deductible for income tax purposes.

The pro forma impact of the KA Medical acquisition was not significant to our financial results for the three and nine-month periods ended September 30, 2020.

Operating results attributable to the KA Medical acquisition were included in our consolidated statements of income (loss) for the three and nine-month periods ended September 30, 2021.

Inventories at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, 2021

Inventories at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

March 31, 2022

December 31, 2021

4 unchanged sentences

Goodwill and Intangible Assets.

The change in the carrying amount of goodwill for the nine-month period ended September 30, 2021 is detailed as follows (in thousands):

The change in the carrying amount of goodwill for the three-month period ended March 31, 2022 is detailed as follows (in thousands):

Goodwill balance at January 1

Effect of foreign exchange

Goodwill balance at September 30

Total accumulated goodwill impairment losses aggregated to approximately $ 8.3 million as of September 30, 2021 and December 31, 2020.

We did no t have any goodwill impairments for the nine-month periods ended September 30, 2021 and 2020.

The total goodwill balance as of September 30, 2021 and December 31, 2020 was related to our cardiovascular segment.

Other intangible assets at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, 2021

Goodwill balance at March 31

Total accumulated goodwill impairment losses aggregated to $ 8.3 million as of March 31, 2022 and December 31, 2021.

We did no t have any goodwill impairments for the three-month periods ended March 31, 2022 and 2021.

The total goodwill balance as of March 31, 2022 and December 31, 2021 was related to our cardiovascular segment.

Other intangible assets at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

March 31, 2022

Gross Carrying

7 unchanged sentences

Customer lists

Aggregate amortization expense for the three and nine-month periods ended September 30, 2021 was approximately $ 12.4 million and $ 37.3 million, respectively.

Aggregate amortization expense for the three and nine-month periods ended September 30, 2020 was approximately $ 14.4 million and $ 44.2 million, respectively.

Aggregate amortization expense for the three-month periods ended March 31, 2022 and 2021 was $ 12.2 million and $ 12.5 million, respectively.

We evaluate long-lived assets, including amortizing intangible assets, for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

1 unchanged sentence

We determine the fair value of our amortizing assets based on estimated future cash flows discounted back to their present value using a discount rate that reflects the risk profiles of the underlying activities.

During the nine-month periods ended September 30, 2021 and 2020, we identified indicators of impairment associated with certain acquired intangible assets within the asset groups based on our qualitative assessment.

The primary indicator of impairment was our planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc Limited (“ArraVasc”).

We recorded an impairment charge for the remaining carrying value of ArraVasc intangible assets of approximately $ 1.6 million during the nine months ended September 30, 2021, all of which pertained to our cardiovascular segment.

We recorded total impairment charges associated with intangible assets in our cardiovascular segment for the three and nine-month periods ended September 30, 2020 of approximately $ 18.1 million and $ 20.5 million, respectively.

These expenses are reflected within impairment charges in our consolidated statements of income (loss).

The primary factors driving impairment of certain intangible assets for the three and nine-month periods ended September 30, 2020 were planned closure and restructuring activities and uncertainty about future product development and commercialization associated with the acquired technologies due in part to the economic impacts of the COVID-19 pandemic.

The intangible impairment charges related to a write-off or reduction in value of intangible assets from our August 2017 acquisition of certain assets from Laurane Medical S.A.S, our license agreements with ArraVasc Limited, intangible assets from our May 2018 acquisition of certain assets from DirectACCESS Medical, LLC, in-process technology intangible assets of Sontina Medical LLC we acquired through our February 2018 acquisition of certain divested assets from Becton, Dickinson and Company, and a customer list intangible asset from our October 2017 acquisition of ITL Healthcare Pty Ltd (“ITL”).

See Note 14 for additional details regarding impairment charges recorded in the three and nine-month periods ended September 30, 2021 and 2020.

Estimated amortization expense for the developed technology and other intangible assets for the next five years consisted of the following as of September 30, 2021 (in thousands):

During the three-month period ended March 31, 2022, we identified indicators of impairment associated with certain acquired intangible assets based on our qualitative assessment, which led us to complete an interim quantitative impairment assessment.

The primary indicator of impairment was our planned divestiture of the STD Pharmaceutical Products Limited (“STD Pharmaceutical”) business acquired in our August 2019 acquisition of Fibrovein Holdings Limited.

On April 30, 2022, we completed the divestiture of Fibrovein Holdings Limited, in exchange for the termination of our obligations arising from the acquisition transaction in August 2019 and the purchaser’s agreement to make potential future payments upon a qualifying disposition of the STD Pharmaceutical business.

We recorded an impairment charge for the carrying value of $ 1.7 million of intangible assets during the three months ended March 31, 2022, all of which pertained to our cardiovascular segment.

We did no t identify indicators of impairment in any intangible assets based on our qualitative assessment for the three-month period ended March 31, 2021.

Estimated amortization expense for the developed technology and other intangible assets for the next five years consisted of the following as of March 31, 2022 (in thousands):

Year Ending December 31,

2 unchanged sentences

Income Taxes.

Our provision for income taxes for the three-month periods ended September 30, 2021 and 2020 was a tax expense of approximately $ 2.2 million and $ 0.8 million, respectively, which resulted in an effective tax rate of 15.6 % and ( 37.7 )%, respectively.

Our provision for income taxes for the nine-month periods ended September 30, 2021 and 2020 was a tax expense (benefit) of approximately $ 5.9 million and ($ 1.3 ) million, respectively, which resulted in an effective tax rate of 17.5 % and 4.7 %, respectively.

The increase in the income tax expense and the corresponding change in the effective income tax rate for the three and nine-month periods ended September 30, 2021, when compared to the prior-year periods, was primarily due to a pre-tax loss during the 2020 periods, as well as a change in the jurisdictional mix of earnings.

Our provision for income taxes for the three-month periods ended March 31, 2022 and 2021 was a tax expense of $ 3.6 million and $ 1.7 million, respectively, which resulted in an effective tax rate of 25.6 % and 13.7 %, respectively.

The increase in the income tax expense and the corresponding change in the effective income tax rate for the three-month period ended March 31, 2022, when compared to the prior-year period, was primarily due to decreased benefit from discrete items such as share-based compensation.

Our effective tax rate differs from the U.S.

1 unchanged sentence

Revolving Credit Facility and Long-Term Debt.

Principal balances outstanding under our long-term debt obligations as of September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, 2021

Principal balances outstanding under our long-term debt obligations as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

March 31, 2022

December 31, 2021

13 unchanged sentences

Revolving credit loans denominated in an Alternative Currency (as defined in the Third Amended Credit Agreement) bear interest at the Eurocurrency Rate plus the Applicable Margin.

Swingline loans bear interest at the Base Rate plus the Applicable Margin

(as defined in the Third Amended Credit Agreement).

Swingline loans bear interest at the Base Rate plus the Applicable Margin (as defined in the Third Amended Credit Agreement).

Interest on each Base Rate loan is due and payable on the last business day of each calendar quarter;

10 unchanged sentences

(3) Maximum level of the aggregate amount of all Facility Capital Expenditures (as defined in the Third Amended Credit Agreement) in any fiscal year.

We believe we were in compliance with all covenants set forth in the Third Amended Credit Agreement as of September 30, 2021.

As of September 30, 2021, we had outstanding borrowings of $ 279 million under the Third Amended Credit Agreement, with additional available borrowings of approximately $ 456 million, based on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Third Amended Credit Agreement.

Our interest rate as of September 30, 2021 was a fixed rate of 2.71 % on $ 75 million as a result of an interest rate swap (see Note 9) and a variable floating rate of 1.08 % on $ 204 million.

We believe we were in compliance with all covenants set forth in the Third Amended Credit Agreement as of March 31, 2022.

As of March 31, 2022, we had outstanding borrowings of $ 253 million and issued letter of credit guarantees of $ 3.4 million under the Third Amended Credit Agreement, with additional available borrowings of approximately $ 475 million, based

on the maximum net leverage ratio and the aggregate revolving credit commitment pursuant to the Third Amended Credit Agreement.

Our interest rate as of March 31, 2022 was a fixed rate of 2.71 % on $ 75 million as a result of an interest rate swap (see Note 8) and a variable floating rate of 1.46 % on $ 177.8 million.

Our interest rate as of December 31, 2021 was a fixed rate of 2.71 % on $ 75 million as a result of an interest rate swap and a variable floating rate of 1.10 % on $ 168.1 million.

The foregoing fixed rates do not reflect potential future changes in the applicable margin.

Future minimum principal payments on our long-term debt, as of September 30, 2021, were as follows (in thousands):

Future minimum principal payments on our long-term debt, as of March 31, 2022, were as follows (in thousands):

Future Minimum

3 unchanged sentences

Our earnings and cash flows are subject to fluctuations due to changes in interest rates and foreign currency exchange rates, and we seek to mitigate a portion of the risks attributable to those fluctuations by entering into derivative contracts.

The derivatives we use are interest rate swaps and foreign currency forward contracts.

We recognize derivatives as either assets or liabilities at fair value in the accompanying consolidated balance sheets, regardless of whether or not hedge accounting is applied.

The derivative instruments we use are interest rate swaps and foreign currency forward contracts.

We recognize derivative instruments as either assets or liabilities at fair value in the accompanying consolidated balance sheets, regardless of whether or not hedge accounting is applied.

We report cash flows arising from our hedging instruments consistent with the classification of cash flows from the underlying hedged items.

2 unchanged sentences

For qualifying hedges, the change in fair value is deferred in accumulated other comprehensive income, a component of stockholders’ equity in the accompanying consolidated balance sheets, and recognized in earnings at the same time the hedged item affects earnings.

Changes in the fair value of derivatives not designated as hedging instruments are recorded in earnings throughout the term of the derivative.

Changes in the fair value of derivative instruments not designated as hedging instruments are recorded in earnings throughout the term of the derivative.

Interest Rate Risk.

3 unchanged sentences

Derivative Instruments Designated as Cash Flow Hedges

On August 5, 2016, we entered into a pay-fixed, receive-variable interest rate swap with a notional amount of $ 175 million with Wells Fargo to fix the one-month LIBOR rate at 1.12 %.

The variable portion of the interest rate swap was tied to the one-month LIBOR rate (the benchmark interest rate).

The interest rate swap expired on July 6, 2021.

On December 23, 2019, we entered into a pay-fixed, receive-variable interest rate swap with a notional amount of $ 75 million with Wells Fargo to fix the one-month LIBOR rate at 1.71 % for the period from July 6, 2021 to July 31, 2024.

1 unchanged sentence

On a monthly basis, the interest rates under both the interest rate swap and the underlying debt reset, the swap is settled with the counterparty, and interest is paid.

On September 30, 2021 and December 31, 2020, our interest rate swaps qualified as cash flow hedges.

The fair value of our interest rate swap on September 30, 2021 was a liability of approximately $ 2.5 million, which was partially offset by approximately $ 0.6 million in deferred taxes.

The fair value of our interest rate swaps on December 31, 2020 was a liability of $ 4.4 million, partially offset by approximately $ 1.1 million in deferred taxes.

On March 31, 2022 and December 31, 2021, our interest rate swap qualified as a cash flow hedge.

The fair value of our interest rate swap on March 31, 2022 was an asset of $ 1.2 million, which was partially offset by $ 0.3 million in deferred taxes.

The fair value of our interest rate swap on December 31, 2021 was a liability of ($ 1.4 ) million, partially offset by ($ 0.4 ) million in deferred taxes.

Foreign Currency Risk.

2 unchanged sentences

Our policy is to enter into foreign currency derivative contracts with maturities of up to two years .

We are exposed to foreign currency exchange rate risk with respect to transactions and balances denominated in Chinese Renminbi, Euros, British Pounds, Mexican Pesos, Brazilian Reals, Australian Dollars, Hong Kong Dollars, Swiss Francs, Swedish Krona, Canadian Dollars, Danish Krone, Japanese Yen, and South Korean Won, among others.

We are exposed to foreign currency exchange rate risk with respect to transactions and balances denominated in various currencies, with our most significant exposure related to transactions and balances denominated in Chinese Renminbi and Euros, among others.

We do not use derivative financial instruments for trading or speculative purposes.

5 unchanged sentences

We enter into approximately 100 cash flow foreign currency hedges every month.

As of September 30, 2021 and December 31, 2020, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of approximately $ 124.0 million and $ 168.2 million, respectively.

As of March 31, 2022 and December 31, 2021, we had entered into foreign currency forward contracts, which qualified as cash flow hedges, with aggregate notional amounts of $ 141.0 million and $ 123.0 million, respectively.

Derivative Instruments Not Designated as Cash Flow Hedges

1 unchanged sentence

We enter into approximately 50 foreign currency fair value hedges every month.

As of September 30, 2021 and December 31, 2020, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of approximately $ 92.1 million and $ 74.8 million, respectively.

As of March 31, 2022 and December 31, 2021, we had entered into foreign currency forward contracts related to those balance sheet accounts with aggregate notional amounts of $ 87.9 million and $ 86.0 million, respectively.

Balance Sheet Presentation of Derivative Instruments.

As of September 30, 2021 and December 31, 2020, all derivative instruments, both those designated as hedging instruments and those that were not designated as hedging instruments, were recorded at fair value on a gross basis on our consolidated balance sheets.

As of March 31, 2022 and December 31, 2021, all derivative instruments, both those designated as hedging instruments and those that were not designated as hedging instruments, were recorded at fair value on a gross basis on our consolidated balance sheets.

We are not subject to any master netting agreements.

2 unchanged sentences

Balance Sheet Location

September 30, 2021

March 31, 2022

December 31, 2021

Interest rate swaps

Other assets (long-term)

Foreign currency forward contracts

4 unchanged sentences

Interest rate swaps

Accrued expenses

Interest rate swaps

Other long-term obligations

5 unchanged sentences

Balance Sheet Location

September 30, 2021

March 31, 2022

December 31, 2021

6 unchanged sentences

Derivative Instruments Designated as Cash Flow Hedges

Derivative instruments designated as cash flow hedges had the following effects, before income taxes, on other comprehensive income (“OCI”), accumulated other comprehensive income (“AOCI”), and net earnings in our consolidated statements of income (loss), consolidated statements of comprehensive income (loss) and consolidated balance sheets (in thousands):

Amount of Gain/(Loss)

Consolidated Statements

Amount of Gain/(Loss)

Recognized in OCI

of Income (Loss)

Reclassified from AOCI

Three Months Ended September 30,

Derivative instrument

Location in statements of income

Interest rate swaps

Interest expense

Foreign currency forward contracts

Cost of sales

Derivative instruments designated as cash flow hedges had the following effects, before income taxes, on other comprehensive income (“OCI”), accumulated other comprehensive income (“AOCI”), and net earnings in our consolidated statements of income, consolidated statements of comprehensive income and consolidated balance sheets (in thousands):

Amount of Gain/(Loss)

2 unchanged sentences

Recognized in OCI

of Income (Loss)

Reclassified from AOCI

Nine Months Ended September 30,

Three Months Ended March 31,

Derivative instrument

4 unchanged sentences

Cost of sales

As of September 30, 2021, approximately ($ 1.2 ) million, or ($ 0.9 ) million after taxes, was expected to be reclassified from accumulated other comprehensive income (loss) to earnings in revenue and cost of sales over the succeeding twelve months.

As of September 30, 2021, approximately ($ 1.2 ) million, or ($ 0.9 ) million after taxes, was expected to be reclassified from accumulated other comprehensive income (loss) to earnings in interest expense over the succeeding twelve months.

As of March 31, 2022, ($ 1.0 ) million, or ($ 0.8 ) million after taxes, was expected to be reclassified from accumulated other comprehensive income (loss) to earnings in revenue and cost of sales over the succeeding twelve months.

As of March 31, 2022, $ 34,000 , or $ 26,000 after taxes, was expected to be reclassified from accumulated other comprehensive income (loss) to earnings in interest expense over the succeeding twelve months.

Derivative Instruments Not Designated as Hedging Instruments

The following gains/(losses) from these derivative instruments were recognized in our consolidated statements of income (loss) for the periods presented (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Derivative Instrument

Location in statements of income (loss)

Location in statements of income

Foreign currency forward contracts

1 unchanged sentence

Commitments and Contingencies.

Loan Commitment.

On October 11, 2019, we acquired shares of stock in Selio Medical Limited (“Selio”) representing an ownership interest of approximately 19.5 %, as well as an option to purchase all ordinary shares of Selio throughout a 45-day period commencing from the date Selio receives FDA 510(k) approval of a medical device it is currently developing, and an option to purchase all remaining shares of Selio on the third anniversary date of the agreement if we elect to purchase all ordinary shares.

We have also made a loan of $ 250,000 to Selio and committed to provide additional loans of up to € 2 million at a rate of 5 % per annum until one year and 45 days have passed from the date Selio receives FDA Section 510(k) approval of a medical device it is currently developing .

Additional loans made to Selio pursuant to our loan agreement, together with the initial advance and all other amounts owed to us by Selio, are secured by Selio’s assets.

Deed of Settlement.

In August 2021, we finalized a deed of settlement and paid approximately $ 6 million of contract termination costs to renegotiate certain terms of our September 1, 2017 share purchase agreement with IntelliMedical Technologies Pty.

(“Intellimedical”) and terminate certain obligations, including the obligation to make potential future payments of AU$ 15 million (Australian dollars), pursuant to that agreement.

These costs were accrued in selling, general and administrative expenses during the second quarter of 2021.

In the ordinary course of business, we are involved in various proceedings, legal actions and claims.

3 unchanged sentences

For legal matters for which our management had sufficient information to reasonably estimate our future obligations, a liability representing management’s best estimate of the probable loss, or the minimum of the range of probable losses when a best estimate within the range is not known, is recorded.

The estimates are based on consultation with legal counsel, previous settlement experience and settlement strategies.

The estimates are based on consultation with legal counsel, previous settlement experience, settlement strategies and the potential availability of insurance coverage.

If actual outcomes are less favorable than those estimated by management, additional expense may be incurred, which could unfavorably affect our financial position, results of operations and cash flows.

The ultimate cost to us with respect to such proceedings,

actions and claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

The ultimate cost to us with respect to such proceedings, actions and claims could be materially different than the amount of the current estimates and accruals and could have a material adverse effect on our financial position, results of operations and cash flows.

Securities Litigation

On December 5, 2019, the Bucks County Employees Retirement Fund filed a complaint against Merit, our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the Central District of California, individually and on behalf of all purchasers of our common stock between February 26, 2019 and October 30, 2019.

On December 5, 2019, the Bucks County Employees Retirement Fund filed a complaint against Merit, our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the Central District of California (the “California Central District Court”), individually and on behalf of all purchasers of our common stock between February 26, 2019 and October 30, 2019.

On February 24, 2020, the court appointed the City of Atlanta Police Pension Fund, the Atlanta Firefighters’ Pension Fund, and the Employees’ Retirement System of the City of Baton Rouge and Parish of East Baton Rouge as Lead Plaintiffs.

This action is now captioned In re Merit Medical Systems, Inc.

This action is captioned In re Merit Medical Systems, Inc.

Securities Litigation (Master File No.

8:19-cv-02326-DOC-ADS).

On June 30, 2020, Lead Plaintiffs filed a consolidated class action complaint for violations of federal securities laws against Merit, our Chief Executive Officer and our Chief Financial Officer in the United States District Court for the Central District of California, individually and on behalf of all purchasers of our common stock between February 26, 2019 and October 30, 2019.

The consolidated class action complaint alleges that defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and seeks unspecified damages, costs and attorneys’ fees, and equitable relief.

We filed a motion to dismiss the action, which the Court denied.

We intend to vigorously defend against the lawsuit.

We have not recorded an expense related to this matter because any potential loss is not currently probable or reasonably estimable.

Additionally, we cannot presently estimate the range of loss, if any, that may result from the matter.

It is possible that the ultimate resolution of the foregoing matter, or other similar matters, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial condition, results of operations or liquidity.

On June 30, 2020, Lead Plaintiffs filed a consolidated class action complaint for violations of federal securities laws against Merit, our Chief Executive Officer and our Chief Financial Officer in the California Central District Court, individually and on behalf of all purchasers of our common stock between February 26, 2019 and October 30, 2019.

The consolidated class action complaint alleged that defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, and sought unspecified damages, costs and attorneys’ fees, and equitable relief.

As of December 31, 2021, we had accrued approximately $ 10 million of net expense in connection with an agreement in principle to settle the consolidated class action complaint.

The parties executed a settlement agreement, settling all claims asserted in the class action complaint, and the settlement agreement was approved by the Central California District Court on April 13, 2022.

Shareholder Derivative Action

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We intend to vigorously defend against the lawsuit.

The proceeding has been stayed until February 2022, subject to the right of either party seeking to lift or extend the stay.

We have not recorded an expense related to this matter because any potential loss is not currently probable or reasonably estimable.

The proceeding was stayed until February 19, 2022, subject to the right of either party to seek to lift or extend the stay.

The stay has expired, however the parties have been engaged in mediation in an attempt to resolve the dispute.

We have not recorded an expense related to this matter because any potential loss is not reasonably estimable.

Additionally, we cannot presently estimate the range of loss, if any, that may result from the matter.

It is possible that the ultimate resolution of the foregoing matter, or other matters, if resolved in a manner unfavorable to us, may be materially adverse to our business, financial condition, results of operations or liquidity.

Legal costs for proceedings, legal actions and claims discussed, such as outside counsel fees and expenses, are charged to expense in the period(s) incurred.

Earnings (Loss) Per Common Share (EPS).

The computation of weighted average shares outstanding and the basic and diluted earnings (loss) per common share for the three and nine-month periods ended September 30, 2021 and 2020 consisted of the following (in thousands, except per share amounts):

Earnings Per Common Share (EPS).

The computation of weighted average shares outstanding and the basic and diluted earnings per common share for the three-month periods ended March 31, 2022 and 2021 consisted of the following (in thousands, except per share amounts):

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Average common shares outstanding

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Stock-Based Compensation Expense.

Stock-based compensation expense before income tax expense (benefit) for the three and nine-month periods ended September 30, 2021 and 2020 consisted of the following (in thousands):

Stock-based compensation expense before income tax expense (benefit) for the three-month periods ended March 31, 2022 and 2021 consisted of the following (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Cost of sales

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Stock-based compensation expense before taxes

We recognize stock-based compensation expense (net of a forfeiture rate), for those awards which are expected to vest, on a straight-line basis over the requisite service period.

We estimate the forfeiture rate based on our historical experience and expectations about future forfeitures.

Nonqualified Stock Options

During the three and nine-month periods ended September 30, 2021, we granted stock options representing 530,500 and 656,350 shares of our common stock, respectively.

During the three and nine-month periods ended September 30, 2020, we granted stock options representing 112,500 and 328,994 shares of our common stock, respectively.

We use the Black-Scholes methodology to value the stock-based compensation expense for options.

In applying the Black-Scholes

methodology to the option grants, the fair value of our stock-based awards granted was estimated using the following assumptions for the periods indicated below:

Nine Months Ended

September 30,

During the three-month periods ended March 31, 2022 and 2021, we granted stock options representing 123,606 and 125,850 shares of our common stock, respectively.

We use the Black-Scholes methodology to value the stock-based

compensation expense for options.

In applying the Black-Scholes methodology to the option grants, the fair value of our stock-based awards granted was estimated using the following assumptions for the periods indicated below:

Three Months Ended

Risk-free interest rate

1.4 % - 1.8 %

0.3 % - 1.7 %

Expected option term

4.0 - 5.0 years

Expected dividend yield

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46.2 % - 46.6 %

38.7 % - 45.1 %

The average risk-free interest rate is determined using the U.S.

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For awards with a vesting period, compensation expense is recognized on a straight-line basis over the service period, which corresponds to the vesting period.

We recognize stock-based compensation expense (net of a forfeiture rate), for those awards which are expected to vest, on a straight-line basis over the requisite service period.

We estimate the forfeiture rate based on our historical experience and expectations about future forfeitures.

As of September 30, 2021, the total remaining unrecognized compensation cost related to non-vested stock options was approximately $ 29.4 million, which was expected to be recognized over a weighted average period of 2.7 years.

As of March 31, 2022, the total remaining unrecognized compensation cost related to non-vested stock options was $ 25.9 million, which was expected to be recognized over a weighted average period of 2.4 years.

Stock-Settled Performance-Based Restricted Stock Units (“Performance Stock Units”)

During the nine-month periods ended September 30, 2021 and 2020, we granted performance stock units to certain of our executive officers which, as amended, represent up to 128,883 and 127,060 shares of our common stock, respectively.

During the three-month periods ended March 31, 2022 and 2021, we granted performance stock units to certain of our executive officers which represent up to 109,178 and 128,883 shares of our common stock, respectively.

Conversion of the performance stock units occurs at the end of the relevant performance periods, or one year after the agreement date, whichever is later.

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The fair value of each performance stock unit was estimated as of the grant date using the following assumptions for awards granted in the periods indicated below:

Nine Months Ended

September 30,

Three Months Ended

Risk-free interest rate

0.1 % - 0.3 %

1.1 % - 1.3 %

Performance period

1.8 - 2.8 years

0.8 - 2.8 years

Expected dividend yield

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43.7 % - 49.3 %

40.2 % - 56.1 %

The risk-free interest rate of return was determined using the U.S.

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Compensation expense is recognized using the grant-date fair value for the number of shares that are probable of being awarded based on the performance conditions.

Each reporting period, this probability assessment is updated, and cumulative catchups are recorded based on the level of FCF that is expected to be achieved.

Each reporting period, this probability assessment is updated, and cumulative adjustments are recorded based on the level of FCF that is expected to be achieved.

At the end of the performance period, cumulative expense is calculated based on the actual level of FCF achieved.

As of September 30, 2021, the total remaining unrecognized compensation cost related to stock-settled performance stock units was approximately $ 5.9 million, which is expected to be recognized over a weighted average period of 1.8 years.

As of March 31, 2022, the total remaining unrecognized compensation cost related to stock-settled performance stock units was $ 9.3 million, which is expected to be recognized over a weighted average period of 2.2 years.

Liability Awards

During the nine-month periods ended September 30, 2021 and 2020, we granted liability awards to our Chief Executive Officer with total target cash incentives, each in the amount of $ 1.0 million.

During the three-month periods ended March 31, 2022 and 2021, we granted liability awards to our Chief Executive Officer with total target cash incentives, each in the amount of $ 1.0 million.

These awards entitle him to a target cash payment based upon attaining targeted levels of FCF and rTSR, as defined in the award agreements.

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These awards are classified as liabilities and reported in accrued expenses and other long-term obligations within our consolidated balance sheet.

As of September 30, 2021, the total remaining unrecognized compensation cost related to cash-settled performance-based share-based awards was approximately $ 2.1 million, which is expected to be recognized over a weighted average period of 1.8 years.

As of March 31, 2022, the total remaining unrecognized compensation cost related to cash-settled performance-based share-based awards was $ 3.7 million, which is expected to be recognized over a weighted average period of 2.2 years.

Restricted Stock Units

During the nine-month periods ended September 30, 2021 and 2020, we granted restricted stock units to our non-employee directors representing 26,226 and 33,504 shares of our common stock, respectively.

On June 17, 2021, we granted restricted stock units to our non-employee directors representing 26,226 shares of our common stock.

The expense recognized for restricted stock units is equal to the closing stock price on the date of grant, which is recognized over the vesting period.

Restricted stock units granted to each director are subject to such director’s continued service through the vesting date, which is one year from the date of grant.

As of September 30, 2021, the total remaining unrecognized compensation cost related to restricted stock units was approximately $ 1.2 million, which will be recognized over a weighted average period of 0.7 years.

As of March 31, 2022, the total remaining unrecognized compensation cost related to restricted stock units was $ 0.3 million, which will be recognized over the remaining vesting period.

Segment Reporting.

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We evaluate the performance of our operating segments based on net sales and operating income.

Financial information relating to our reportable operating segments and reconciliations to the consolidated totals for the three and nine-month periods ended September 30, 2021 and 2020, were as follows (in thousands):

Financial information relating to our reportable operating segments and reconciliations to the consolidated totals for the three-month periods ended March 31, 2022 and 2021, were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Cardiovascular

Total net sales

Operating Income (Loss)

Operating Income

Cardiovascular

Total operating income (loss)

Total operating income

Total other expense - net

Income tax expense (benefit)

Net income (loss)

Income tax expense

Fair Value Measurements.

Assets (Liabilities) Measured at Fair Value on a Recurring Basis

Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

Our financial assets and (liabilities) carried at fair value and measured on a recurring basis as of March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

Fair Value Measurements Using

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unobservable inputs

September 30, 2021

Interest rate contract liabilities, long-term (1)

March 31, 2022

Interest rate contract asset, long-term (1)

Foreign currency contract assets, current and long-term (2)

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December 31, 2021

Interest rate contract liabilities, current and long-term (1)

Interest rate contract liability, long-term (1)

Foreign currency contract assets, current and long-term (2)

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Contingent consideration liabilities

(1) The fair value of the interest rate contracts is determined using Level 2 fair value inputs and is recorded as accrued expenses or other long-term obligations in the consolidated balance sheets.

(1) The fair value of the interest rate contract is determined using Level 2 fair value inputs and is reported with other long-term assets or other long-term obligations in the consolidated balance sheets.

(2) The fair value of the foreign currency contract assets (including those designated as hedging instruments and those not designated as hedging instruments) is determined using Level 2 fair value inputs and is recorded as prepaid expenses and other current assets or other long-term assets in the consolidated balance sheets.

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Certain of our business combinations involve the potential for the payment of future contingent consideration, generally based on a percentage of future product sales or upon attaining specified future revenue or other milestones.

The contingent consideration liability is re-measured at the estimated fair value at the end of each reporting period with the change in fair value recognized within operating expenses in the accompanying consolidated statements of income (loss) for such period.

We measure the initial liability and re-measure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements.

Changes in the fair value of our contingent consideration liabilities during the three and nine-month periods ended September 30, 2021 and 2020 consisted of the following (in thousands):

Changes in the fair value of our contingent consideration liabilities during the three-month periods ended March 31, 2022 and 2021 consisted of the following (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Beginning balance

Contingent consideration expense (benefit)

Contingent consideration expense

Contingent payments made

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Ending balance

As of September 30, 2021, approximately $ 13.2 million in contingent consideration liability was included in other long-term obligations and approximately $ 35.3 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

As of December 31, 2020, approximately $ 36.9 million in contingent consideration liability was included in other long-term obligations and approximately $ 18.8 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

As of March 31, 2022, $ 5.8 million in contingent consideration liability was included in other long-term obligations and $ 20.5 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

As of December 31, 2021, $ 13.5 million in contingent consideration liability was included in other long-term obligations and $ 34.7 million in contingent consideration liability was included in accrued expenses in our consolidated balance sheet.

Cash paid to settle the contingent consideration liability recognized at fair value as of the applicable acquisition date has been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

The recurring Level 3 measurement of our contingent consideration liabilities included the following significant unobservable inputs at September 30, 2021 and December 31, 2020 (amounts in thousands):

The recurring Level 3 measurement of our contingent consideration liabilities included the following significant unobservable inputs at March 31, 2022 and December 31, 2021 (amounts in thousands):

Fair value at

September 30,

Contingent consideration liability

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Discount rate

10.5 % - 14 %

Projected year of payments

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Discount rate

7.5 % - 12.5 %

Projected year of payments

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Our determination of the fair value of the contingent consideration liability could change in future periods based upon our ongoing evaluation of these significant unobservable inputs.

We intend to record any such change in fair value to operating expenses in our consolidated statements of income (loss).

We intend to record any such change in fair value to operating expenses in our consolidated statements of income.

Contingent Payments to Related Parties

During the nine-month period ended September 30, 2020, we made contingent payments of approximately $ 800,000 to a current director of Merit and former shareholder of Cianna Medical, Inc.

During the three-month period ended March 31, 2022, we made contingent payments of $ 1.6 million to a current director of Merit and former shareholder of Cianna Medical, Inc.

(“Cianna Medical”), which we acquired in 2018.

We made no such payments d uring the nine-month period ended September 30, 2021.

We made no such payments during the three-month period ended March 31, 2021.

The terms of the acquisition, including contingent consideration payments, were determined prior to the appointment of the former Cianna Medical shareholder as a Merit director.

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The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash and cash equivalents, which use Level 1 inputs.

We analyze our investments in privately-held companies to determine if they should be accounted for using the equity method based on our ability to exercise significant influence over operating and financial policies of the company in which we have invested.

Investments not accounted for under the equity method of accounting are accounted for at cost minus impairment, if applicable, plus or minus changes in valuation resulting from observable transactions for identical or similar investments.

Impairment Charges

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All our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy.

Intangible Assets.

During the nine-month period ended September 30, 2021, we recorded an impairment charge related to acquired intangible assets of approximately $ 1.6 million.

During the three and nine-month periods ended September 30, 2020, we recorded impairment charges related to acquired intangible assets of approximately $ 18.1 million and $ 20.5 million, respectively (see Note 6).

Right of Use Operating Lease Assets.

During the nine-month periods ended September 30, 2021 and 2020, we identified changes in events and circumstances relating to certain right-of-use (“ROU”) operating lease assets.

We compared the anticipated undiscounted cash flows generated by a sublease to the carrying value of the ROU operating lease and related long-lived assets and determined that the carrying values were not recoverable.

Consequently, we recorded impairment losses in the nine-month periods ended September 30, 2021 and 2020 of approximately $ 1.4 million and $ 1.5 million, respectively, which is equal to the excess of the carrying value of the assets over their estimated fair value.

The impairment losses in both periods were driven primarily by site consolidation decisions and changes in our projected cash flows for the ROU operating lease assets and related long-lived assets, due to changes in the real estate market as a result of the COVID-19 pandemic.

These changes include an increase in the anticipated time to identify lessees, an increase in anticipated lease concessions, and a decrease in the expected lease rates for the properties.

The ROU operating lease asset impairment losses in both 2021 and 2020 pertained to our cardiovascular segment.

Equity Investments and Purchase Options.

During the three and nine-month periods ended September 30, 2021, we had no losses related to equity investments and purchase options.

During the three-month period ended September 30, 2020 we recorded $ 2.5 million of impairment expense related to our equity investment of 19.5 percent ownership in preferred shares of Fusion Medical Inc.

(“Fusion”) due to uncertainty about future product development and commercialization associated with Fusion’s technology.

In addition, during the nine-month period ended September 30, 2020, we recorded a charge of $ 3.5 million due to our write-off of our purchase option to acquire Bluegrass Vascular Technologies, Inc.

(“Bluegrass Vascular”) due to our decision not to exercise our option to purchase the company.

The write-off of this equity investment and purchase option pertained to our cardiovascular segment.

Our equity investments in privately held companies, including options to acquire these companies, were approximately $ 14.7 million and $ 12.0 million as of September 30, 2021 and December 31, 2020, respectively, which are included within other long-term assets in our consolidated balance sheets.

We analyze our investments in privately-held companies to determine if they should be

accounted for using the equity method based on our ability to exercise significant influence over operating and financial policies of the company in which we have invested.

Property and Equipment.

During the nine-month period ended September 30, 2021, we had losses of $ 1.3 million related to the measurement of property and equipment at fair value based on the planned discontinuance of the Advocate™ Peripheral Angioplasty Balloon product line, sold under our license agreements with ArraVasc , which pertained to our cardiovascular segment.

During the nine-month period ended September 30, 2020, we recorded losses of $ 359,000 based on restructuring activities associated with changes to our distribution agreement with NinePoint Medical, Inc.

(“NinePoint”), which pertained to our endoscopy segment.

During the three-month period ended March 31, 2022, we recorded an impairment charge of $ 1.7 million related to the acquired intangible assets from our August 2019 acquisition of STD Pharmaceutical.

As of March 31, 2022, the net assets associated with the STD Pharmaceutical business were not material.

On April 30, 2022, we divested our ownership of the STD Pharmaceutical business.

We do not anticipate the recognition of a material loss upon the divestiture of this business.

During the three-month period ended March 31, 2021, we had no losses related to acquired intangible assets (see Note 5).

Notes Receivable

Our outstanding long-term notes receivable, including accrued interest and our allowance for current expected credit losses, were approximately $ 1.9 million and $ 2.2 million as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021 and December 31, 2020, we had an allowance for current expected credit losses of approximately $ 1.2 million and $ 0.7 million, respectively, associated with these notes receivable and our contractual obligation to extend credit to Selio.

Our outstanding long-term notes receivable, including accrued interest and our allowance for current expected credit losses, were $ 2.4 million and $ 2.3 million as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022 and December 31, 2021, we had an allowance for current expected credit losses of $ 0.2 million and $ 0.2 million, respectively, associated with these notes receivable.

We assess the allowance for current expected credit losses on an individual security basis, due to the limited number of securities, using a probability of default model, which is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the expected collectability of securities, and other security specific factors.

The table below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the three and nine-month periods ended September 30, 2021 and 2020 (in thousands):

below presents a rollforward of the allowance for current expected credit losses on our notes receivable for the three-month periods ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Beginning balance

Cumulative effect adjustment upon adoption of ASU 2016-13, Credit Losses

Provision for credit loss expense

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Accumulated Other Comprehensive Income (Loss).

The changes in each component of accumulated other comprehensive income (loss) for the three and nine-month periods ended September 30, 2021 and 2020 were as follows:

Cash Flow Hedges

Foreign Currency Translation

Balance as of June 30, 2021

Other comprehensive income (loss)

Reclassifications to:

Cost of sales

Interest expense

Net other comprehensive income (loss)

Balance as of September 30, 2021

Cash Flow Hedges

Foreign Currency Translation

Balance as of June 30, 2020

Other comprehensive income (loss)

Reclassifications to:

Cost of sales

Interest expense

Net other comprehensive income (loss)

Balance as of September 30, 2020

The changes in each component of accumulated other comprehensive income (loss) for the three-month periods ended March 31, 2022 and 2021 were as follows:

Cash Flow Hedges

Foreign Currency Translation

Balance as of December 31, 2020

Balance as of January 1, 2022

Other comprehensive income (loss)

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Net other comprehensive income (loss)

Balance as of September 30, 2021

Balance as of March 31, 2022

Cash Flow Hedges

Foreign Currency Translation

Balance as of December 31, 2019

Balance as of January 1, 2021

Other comprehensive income (loss)

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Net other comprehensive income (loss)

Balance as of September 30, 2020

Balance as of March 31, 2021

Subsequent Events.

On April 30, 2022, we entered into a unit purchase agreement to acquire Restore Endosystems, LLC (“Restore Endosystems”), developer of the Restore Endosystems Bifurcated Stent System.

Subject to the terms and conditions of the unit purchase agreement, we paid $ 3 million in cash at closing, with additional payments totaling $ 4 million payable in separate $ 2 million payments no later than two and four years following the closing of the acquisition, respectively, or earlier upon the achievement of specified milestones.

We intend to account for this transaction as an asset purchase and include the purchase price in our consolidated statements of income as acquired in-process research and development expense, because the technological feasibility of the underlying research and development project has not yet been reached and such technology had no identified future alternative use as of the date of acquisition.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements